BPAM Bond Index Road Show 2009

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The BPAM Bond Index -FiiXTM

Financial Engineering and ResearchDarryl FooJanuar 2009

Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.



2/26

AGENDA

The purpose of todays presentation is to introduce the BPAM Bond Index FiiXTM

from a bond

The BPAM Bond Index - FiiXTM

market players point of view

ntro uct on

Index Objectives

Methodolo Overview

Benefits

Index Facts

Delivery Channels

Appendix

Construction Rules

Formulas



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Introduction

Introducing BPAM Ringgit Bond Index - FiiXTM

The BPAM Ringgit Bond Index (FiiXTM) has been created inresponse to the existing pricing customers and marketparticipants demand for a broad and representative index.

The Index is a by-product of BPAMs bond pricing and info

business.Daily marked-to-market (MTM) price for 1900+ ringgit bondsComprehensive database for ringgit bonds via website and

BondStream

The index is a rules-based, market value-weighted. The

hallmark of a rules-based index is transparency and broadlyspeaking, predictability.

The index is subdivided into as many as 300+ Sub-Indicesbased on a variety of sector, credit and maturityclassifications.

Index and Sub-Index returns (total, price and coupon) arecalculated and rebalanced daily.



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Index Objectives

BPAM Ringgit Bond Index is designed to provide relatively broad, stable and relevantmarket benchmarks. To achieve this goal, we adhere to the following objectives:

AccurateReflect the performance of new investments and existing holdings under a realistic representation of market conditions

Broad

Represent as many asset classes as possible that are realistically available to market participants under normal marketconditions

Contains accessible characteristics and informationr ce, coupon rate, urat on, etc. are a ava a e an access e or nvestors. n ormat on s ou a so e stor ca , or

example, price/yield history

Investable

Bonds are investable and do not contain barriers of entry

Replicable The total returns reported for an index should be replicable by market participants

StableComposition changes of the index should occur infrequently unless it breaches the pre-specified ground rules and

should be easily understood and highly predictable

TransparentA clear set of rules should govern inclusion of bonds or markets in an index, and investors should be able to forecast

and agree on changes in composition. Information and Methodology paper is readily available



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Methodology Overview

The purpose of the Index is to measure the average performance that holders of the relevanttype of bonds experience over time. This is achieved by creating a representative portfolio ofbonds, and measuring their performance

BondIndex

Bond Index comprise of

a series of sub-indices

Aggregate

Bond Sub-

Indices

Sub-Indices representcharacteristics of segments

that are within the overallindex characteristics

Govt /Pseudo

All Corp

MGS/GII Quasi CorpFinance Corp-Guar

Bond Constituents For

Individual Indices

Bonds are grouped asconstituents for indices

Bonds are grouped to

agamas azana

Bonds across segments and classes

represent a targetedcharacteristic of the indices

segrega e n o su - n ces.

Selection via pre-defined rules



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The purpose of the Index is to measure the average performance that holders of the relevanttype of bonds experience over time. This is achieved by creating a representative portfolio ofbonds, and measuring their performance

Family

BPAM Ringgit Bond Index

ALLAggregate

BondIndex

Bond Index comprise of

a series of sub-indices

Conv All Islm All

All typesGovernment

Quasi-government

Bank Negara NotesCorporate-guaranteed

Sub-Indices

Bond Sub-

Indices

Sub-Indices representcharacteristics of segments

that are within the overallindex characteristics

orpora eFinancial

Maturity (years):All tenures, 0.25-1, 1-3, 3-7, 7 overBond Constituents For

Individual Indicesat ngs:

Non Rated Goverment and QuasiGovernments,

AAA, AA, A, BBB



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At the close of each business day, the index constituents are reviewed. At this review,bonds may be added or removed according to following pre-defined rules

ReviewOutstanding Amount Rule

Eligible Bonds Rule

Credit Rule

Tenure Rule

Index and Sub-Indices Constituents

Bonds 107

108

109

Etc

Review

102

103

104

105

106

100

101

03/01/2007

03/02/2007

03/03/2007

03/04/2007

03/05/2007

03/06/2007

03/07/2007

03/08/2007

03/09/2007

03/10/2007

03/11/2007

03/12/2007

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008



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Benefits

Beneficial uses of the index for users.Market Driven Products developed in close cooperation with leading market participants Takes into account of local market conventions and behavior

Established International Standard The construction rules and calculation methodology broadly follow the EFFAS Standardised Rules

Accurate and Stable Data Source Direct MTM bond prices feed from our pricing service

Variety of Choices Choice out of 300+ sub-indices to ensure the specific needs of market participants are meet, be it in performance

measurement or data for portfolio research

User Friendly Navigation Index constituents, statistics and individual bond returns are available Customisable charts to analyse return performances and relative performances of different sub-indices



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Benefits

Performance benchmarking

Benchmark oferformance measurement

0.25%

Daily returns of bond funds against the All Bond Index

FiiXTM All Bond Index

Demonstrate added valueto intended sponsors for

fund managers0.15%

0.20%Bond Fund A

Bond Fund B

Bond Fund C

0.00%

0.05%

0.10%

-0.10%

-0.05%

02/01/2009

03/01/2009

04/01/2009

05/01/2009

06/01/2009

07/01/2009

08/01/2009

09/01/2009

10/01/2009

11/01/2009

12/01/2009

13/01/2009

14/01/2009

15/01/2009

16/01/2009

17/01/2009

18/01/2009

19/01/2009

20/01/2009

21/01/2009

-0.20%

-0.15%



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Benefits

Performance benchmarking using sub-indices

Benchmark oferformance measurement

0.25%

Daily returns of bond funds against the Corporate AllSub-Index

Bond Fund A

Demonstrate added valueto intended sponsors for

fund managers0.15%

0.20%Bond Fund B

Bond Fund C

FiiXTM Corporate All Sub-Indice

0.00%

0.05%

0.10%

-0.10%

-0.05%

02/01/2009

03/01/2009

04/01/2009

05/01/2009

06/01/2009

07/01/2009

08/01/2009

09/01/2009

10/01/2009

11/01/2009

12/01/2009

13/01/2009

14/01/2009

15/01/2009

16/01/2009

17/01/2009

18/01/2009

19/01/2009

20/01/2009

21/01/2009

-0.20%

-0.15%



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Benefits

Assessing the bond market - All bond total return index 3 Jan to 1 Dec 2008

108

109

FiiXTM All Bond Index BNM cut OPR from3.5% to 3.25%

FiiXTM Simple

Average Returns

1 Month 2.55%

106

107

Heightened expectations ofaggressive rate cuts in theU.S.

Spate of negative news in worldfinancial market. Worldwide stock

markets collapsed. Flight-to-safety.

3 Months 4.45%

6 Months 3.07%

12 Months 4.83%

104

105

101

102

Crude oil price escalating. Fearof possible interest rate hikebecause of inflation.

.Brothers filedbankruptcyprotection.

2. AIG sufferedliquidity crisisfollowing

100

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008

.

shoots to 7.7% YoY

its credit rating.



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Benefits

Assessing inter-markets KLSE and All bond total return index 3 Jan to 1 Dec 2008

1500

1600

108

109

KLSEFiiXTM All Bond IndexFiiXTM Simple

Average Returns

1 Month 2.55%

1300

1400

106

1073 Months 4.45%

6 Months 3.07%

12 Months 4.83%

1100

1200

104

105 KLSESimple

Average Returns

1 Month -1.76%

3 Months -22.91%

900

1000

101

102

- .

12 Months -39.27%

800100

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008



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Benefits

Assessing correlation with data sets CPI and All bond total return index 3 Jan to 1 Dec 2008

FiiXTM Simple

Average Returns

1 Month 2.55%8%

9%

108

109

3 Months 4.45%

6 Months 3.07%

12 Months 4.83%7%

106

107

CPI 2008 Y-o-Y

Increase (%)

Nov 5.7%

Oct 7.6%

5%

6%

104

105

.

Aug 8.5%

Jul 8.5%

Jun 7.7%

Ma 3 8%

3%

4%

101

102

.

Apr 3.0%

Mar 2.8%

Feb 2.7%

Jan 2.3%

2%100

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008



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Benefits

Trend analysis and duration strategy

112

All Total Return Index By Tenure Buckets

ALLUsing index data may

rovide indication of market

108

110

1-3 Years

7+ Years

trend

Understanding markettrend in this case providesopportunities to useSustained bull

In bearmarket,

implication isto hold shortterm bondsas a

104

106

portfolio management2

holding longterm bonds asa favouredstrategy

strategy

98

100

102

96

03-Jan-07

03-Feb-07

03-Mar-07

03-Apr-07

03-May-07

03-Jun-07

03-Jul-07

03-Aug-07

03-Sep-07

03-Oct-07

03-Nov-07

03-Dec-07

03-Jan-08

03-Feb-08

03-Mar-08

03-Apr-08

03-May-08

03-Jun-08

03-Jul-08

03-Aug-08

03-Sep-08

03-Oct-08

03-Nov-08

03-Dec-08

03-Jan-09



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Benefits

Data for fixed income research volatility study for market risk assessment

Ability to conduct fixedincome research, in this

0.12%

One Day Volatility Study 2-4 Years Segment

Volatility

case, volatility computationto input into a market risksystem

Provides objective0.09%

0.10%

0.11% A

VolatilityAA

VolatilityAAA

the potential portfolio lostthrough Value-at-Risk(VaR) models

An alternative to yield

0.07%

0.08% VolatilityCagamas

VolatilityGII

, . .class index volatility

0.04%

0.05%

0.06%VolatilityMGS

0.03%

04/01/2008

04/02/2008

04/03/2008

04/04/2008

04/05/2008

04/06/2008

04/07/2008

04/08/2008

04/09/2008

04/10/2008



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Benefits

Data for fixed income research beta & alpha statistics for portfolio risk-return characteristics

rn

Putrajaya Hldgs 05/07/11 vs BPAM Ringgit Bond IndexPrice Return from 28-Sep-2007 to 30-Sep-2008 Ability to conduct fixed

income research, in this=

y = 0.35x - 0.0001

0.60%

0.85%

7/11Clean

Retu case, compute beta, alpha

and R squared statisticson index vs bond returnsfollowing CAPM andportfolio management

)(

),(

on

market

marketbond

mar etbondbond

rVar

rrCov=

= .

0.10%

0.35%

- - - -

Putra05/

Provides objectiveassessment of bond pricevolatility against indexs

Alpha of -0.0001 meansover the period,irrespective of Index'sdaily return, the bond was

-0.011% return per day.In a year this translates to-2.75% a ne ative

-0.40%

-0.15%

. . . . . . . .

All Bond Price Index returns

assessment of bonds riskand return characteristics

. ,performance

Beta of 0.35 means a 1%increase or decrease inmonthly returns of indexwas accompanied by a0.35% increase ordecrease in Putra's

-0.90%

-0.65%

returns

R2 of 16.6% means16.6% of variation inPutra's return isaccounted for byvariability in index



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Benefits

Technical analysis

Technical analysis forformulatin tradin

99

100

Bollinger, EMA, SMA Technical Indicators from 30/09/2007 to 30/09/2008

strategies

95

96

97

98

20-Day SMA + Bollinger

- Bollinger 12-Day EMA

26-Day EMA

94

26/10/2007

26/11/2007

26/12/2007

26/01/2008

26/02/2008

26/03/2008

26/04/2008

26/05/2008

26/06/2008

26/07/2008

26/08/2008

26/09/2008

40

50

60

70

80

90

100

,

RSI

0

10

20

30

19/10/2007

19/11/2007

19/12/2007

19/01/2008

19/02/2008

19/03/2008

19/04/2008

19/05/2008

19/06/2008

19/07/2008

19/08/2008

19/09/2008



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Index Facts

Data as of 31-Dec-2008Sector Breakdown By Market Capitalisation Rating Breakdown By Market CapitalisationBNM0.12%

CorpGuaran-

teed1.31%Quasi Gov

10.33%

A1.27%

AABBB

0.12%

Quasi-Others5.12%

GII10.99%

Khazanah1.96%

Corporate

24.25%

.

AAA9.39%

BNM0.12%

Financial1.95%Gov

62.04%

Cagamas3.25%

MGS51.05%

Number Of Bonds 695

Market Capitalisation (RM million) 403,793

Average Coupon (%) 4.66

Issuer Market Cap (RM million) Weight

Government of Malaysia 250,449.67 62.03%

Cagamas Berhad 13,118.44 3.25%

.

Average Tenure (Days) 2091

Average Duration 4.61

Average Convexity 37.37

Binariang GSM Sdn Bhd 11,989.40 2.97%

K.L. International Airport Berhad 8,644.12 2.14%

Khazanah Nasional Berhad 7,916.63 1.96%



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Delivery Channels

Three different delivery modes to suit clients requirements

Ftp Feed for Customised Index

Web - www.bpam.com.my

110.75

111.75

107.75

108.75

109.75

104.75

105.75

106.75

102.75

103.75

99.75

100.75

.

3-Jan-07 3-Mar-07 3-May-07 3-Jul-07 3-Sep-07 3-Nov-07 3-Jan-08 3-Mar-08 3-May-08 3-Jul-08 3-Sep-08 3-Nov-08 3-Jan-09



20/26

AGENDA

The purpose of todays presentation is to introduce the BPAM Bond Index FiiX

TM

from a bond

The BPAM Bond Index - FiiXTM

market players point of view

ntro uct on

Index Objectives

Methodolo Overview

Benefits

Index Facts

Delivery Channels

Appendix

Construction Rules

Formulas



21/26

Construction Rules

BPAM all bond index bond inclusion rules compared to other indices

RulesItems * **

Defining the index universe

Currency Ringgit Ringgit U.S. dollars

AmountOutstanding

>= 50 milN/a for Govt>= 150 mil for corporate

>= 500 mil

RatingInvestment-grade rating, BBB3/BBB- andabove

A1 and aboveInvestment-grade rating, BBB3/BBB- andabove

Eligible

Instruments

Zero-coupon, fixed-coupon, bullet and

bonds with secondary-notes

Zero-coupon, fixed couponOption-free fixed rate bonds, make (wholebonds)

Base Date 2007 1994 1996

IndexReturn Type

Total return, price return, coupon return Total returnTotal return (represented in terms ofannualized yield)

Average Coupon, modified duration, convexity,modified duration convexit ield

Coupon, macaulay duration, modified

Risk Stats yield, tenure, ,

duration, market value, price, yield, tenure

* Malaysian Bond Index (2005)


** Dow Jones Corporate Bond Index (2006)


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Construction Rules


RulesItems * **

Defining the index universe

Principle Conventional and Islamic Conventional Conventional

Maturity0.25 to 1yr , 1 to 3 yrs, 3 to 7 yrs, above7yrs

1 to 3 yrs, 3 to7 yrs, above 7 yrs1 to 5 yrs, 5 to 10 yrs, above 10 yrs1 to 10 yrs, All yrs

1.5 to 3.5 yrs, 3.5 to 7.5 yrs, 7.5 to 17.5yrs,above 17.5

CreditGovernment, Pseudo Government andSupras, Corporate

Government, Khazanah, Cagamas andCorporate

Corporate

Price

Source

Marked-to-market prices from Bond

Pricing Agency Malaysia

Average bid levels from at least two sources One mid / bid / ask level from Reuters

Weighting Market capitalisation Market capitalisation Equal weighted

Settlement Next business day (T+1) n/a n/a

Re-Cash flows are reinvested into the index Cash flows are reinvested into the index n/a

investment





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Construction Rules


RulesItems * **

Reviewing and Rebalancing

Timing andFrequency

6.15p.m. daily DailyMonthly, by the end of first day of themonth

FactorsUsed forReview

New issues, credit rating changes,outstanding amount changes, maturity ofissues

New issues, credit rating changes, outstandingamount changes, maturity of issues

New issues, credit rating changes,outstanding amount changes, maturity ofissues

Day ofannounce-ments toactions

taken

N/a as review and rebalancing occursdaily

N/a as review and rebalancing occurs on apricing date (daily)

On the 25th of each month





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Formulas

Market capitalisation scheme and descriptive statistics formulas

Market capitalisation/value weighted calculationIndividual security is weighted by its market value giving large issues a greater role in influencing the indexCalculation method intends to emulate portfolio performanceCalculation reflects change from previous days portfolio performance (chain-link method)

Bond constituents daily total return: Indexs Daily Total Return:

where

1,1,

1,1,,,,,

,

)()(

+

++++=

titi

titititititi

tiAIP

AIPIAIPrinPTR

=

+

+=n

j

tjtjtj

tititii

NAIP

NAIPw

1

1,1,1,

1,1,1,

))((

)(=

=n

i

tiiti TRwITR1

,,

Total Return Index:

1)1( += ttt TRIITRTRI

Descriptive statistics calculationIn contrast to Index Returns and Levels, Index Statistics are calculated to reflect the risk profile of the Index, afterrebalancing has occurred, i.e. for the succeeding day

=

=n

i

tiit YwAYYTMaverage1

,')(

=n

tiit APwAPpricecleanaverage ,')(

=

=n

i

tiit MDwAMDdurationaverage1

,')(

=n

tiit CwACconvexityaverage ,')(=i 1

=

=n

i

tiit TwATmaturityaverage1

,')(

=i 1

=n

tiit CRwACRcouponaverage ,')( +

+=

n

tjtjtj

tititi

i

NAIP

NAIPw

,,,

,,,

))((

)('

where


=i 1 =j 1


25/26

Rule FAQ

Common questions

Why arent option embedded bonds including subordinated debts included as eligible instruments?The basic principles in deciding constituent selection is to have:

Instruments with similar-like features. As of 31-Dec-2008, option embedded bonds make up approximately 6.8%of the bond market in terms of market value. Zero-coupon, fixed-coupon, bullet and bonds with secondary-notesmake up over 90% of the bond market.

Future cashflows should be quantifiable and predictable. In the case of option embedded bonds, although by

market convention option embedded bonds should be redeemed on the call date, abnormal market conditionsare resulting in issuers allowing the optionality lapsed. For example, Bloomberg reported on Feb 11, 2008 WooriBank, South Koreas second-biggest, would not exercise its call options on the $400 million subordinate debts

.This reason is also mainly why the index does not include securitised assets as unscheduled redemption mayoccur subject to trigger events which may or may not happen during the course of the assets life.



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Darryl [email protected] Engineer

Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.

19-8 , The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, MalaysiaTel: +603 2772 0899 Fax: +603 2772 0808 Email : [email protected]

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BPAM Bond Index Road Show 2009